Monday 17 November 2008

The Tax Cut We Won't Be Getting

The threshold for income tax should be the median wage for full-time work (currently about £23,000 per annum), with tax thereafter at a flat rate with no further exemptions or allowances. That this would mean the same rate for everyone does not, of course, mean that it would be the same sum for everyone.

It does, however, mean the unaccustomed arrival of a tax bill for those whose only current relationship to the taxation system is that of being bailed out by taxpayers when they look like becoming so poor that they might join our number.

There are many uses to which the vast revenues thus accessed for the first time might be put, not including, for example, nuclear weapons, or wars in Afghanistan and Iraq, or bailing out super-rich non-taxpayers in order to keep them super-rich and non-taxpaying.

One such good use would and should be the amalgamation of all current Social Security payments into something called, and providing, Social Security, and guaranteeing that no one's income ever fell below half the national median wage for full-time work.

Both this new tax system and this new benefit system would be dazzling simple to understand, and would cost next to nothing to administer.

27 comments:

  1. Sounds good. What is the flat rate you propose? Lots of people on both the left and right support flat taxes, though most suggest an allowance of about 10k - an allowance of over double that would either mean a pretty high flat rate (maybe as much as 40-50%, though I haven't run the numbers - I'm sure you have) or a massive cut in govt spending (again I haven't run the numbers, but you will have done - what will you cut?)

    This is a flagship BPA policy here, but you must expect people to challenge you on the details, or at least the outline proposals for tax rates / spending realignments.

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  2. "This is a flagship BPA policy here"

    Some of our people remain unconvinced, which is why you won't read this on the BPA website. It appears here as a personal opinion. Like everything else on here, as such, in fact.

    And that's why I haven't worked out a rate yet. Establishing the principle is more important at this stage.

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  3. Not sure if my last comment got through, so writring it again:

    The principle is nothing without some demonstration of the impact, surely? I might be in favour of a principle of everyone paying the same rate of tax, but if the impact is a halving of total government tax take and a slashing of the NHS and welfare state, I wouldn't be in favour of it.

    And you've gone further than a principle - you've set out an indicative amount. You must have had some thought behind that. So what do you think the impact would be?

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  4. It would be set at the rate necessary to deliver everything promised on the BPA website, both in terms of new or additional spending, and in terms of cuts (notably the two current wars).

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  5. You yourself took a bit of convincing about public ownership.

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  6. Yes, but, combined with current events, they (or, presumably, you) won me round. And I now have the zeal of a convert.

    My support for public ownership remains, I might add, purely pragmatic, as was and is the Real Labour way.

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  7. notably the two current wars

    And Trident.

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  8. That's great, because it would take a lot of people out of the tax system. What do you think the impact would be at the margins: people who earn around £23,000? Someone who currently earns £23,000 (I'm taking this as median income, but in fact it's probably not this precise figure - my point stands with slightly different numbers, and the general argument is the important one) would be much better off under your scheme, because they would be exempt from tax, whereas someone who currently earns £23,001 would end up with much less - £11,500 after tax if Alice is right about a 50% basic rate. Obviously this would have a huge impact on people with salaries between £23,000 and whatever the figure is at which it pays to earn more - if the basic rate is 50%, then that's £23,000 x 2, or £46,000. That's a vast area of the economy (I declare an interest here: it includes me). What impact do you think this change would have on behaviour and salaries? What impact do you think it would have on the level of median income, which obviously changes according to the level of salaries in the economy?

    I personally would almost certainly ask my employer for a pay cut, to £23,000, as I'd be better off overall, as would he because he'd have to pay me less - it would be great for his business. Once my salary did drop to £23,000, I'd have no incentive to work harder to seek a pay rise (apart from a rise which would double my pay - which is quite a long shot). But if everyone did that (and it would be rational to do so, for everyone who earns up to £46,000) then tax revenues would plummet. And so would productivity, because you'd have set, in effect, a maximum wage. An employer would have to pay an additional £23,001 to reward an employee by £1, and they probably wouldn't ever do this.

    Actually, writing this, I see that this behaviour would bring median income down sharply. Would you then recalculate the tax thresholds? How would you prevent a further readjustment by employees and employers cutting their salaries to raise their incomes?

    As I say, I really like your idea. But I'd be keen to know what work you've done to deal with the consequences of such a massive change. I freely admit that I don't know anything about economics - I'm just using common sense - so I'm going to have to defer to your greater expertise.

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  9. So, let's get this clear: you want to remove everyone with an income of £23,000 or under from tax, and you want to guarantee everyone a minimum income of £11,500?

    How much, roughly, will that cost?

    I accept that you will be able to make some savings elsewhere, by cutting spending in some areas. But any idea of the cost of these aspects of the policy? That would give some sense of the savings you will therefore need to make.

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  10. This looks to me like a tax rise for a lot of people, including the people who write the papers and run the broadcasting organisations. How on earth will you get this message across to the public? Lots of work will be put into making it massively unpopular.

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  11. Do you think there it's possible that many of the rich people adversely affected might leave the country? You'd lose a lot of revenue that way.

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  12. It would be set at the rate necessary to deliver everything promised on the BPA website, both in terms of new or additional spending, and in terms of cuts (notably the two current wars).

    Do you know what the BPA's programme's net cost is overall? At least an indicative figure, if you can't be precise?

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  13. You could make a start on paying this if you abolished the RAF, I reckon.

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  14. Lots of good questions here. It's not like David not to have an answer. Do I smell a u-turn coming?

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  15. Not a bit of it. I'll deal with them later this afternoon/evening, or possibly tomorrow if things go really badly...

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  16. It'll have to be tomorrow afternoon. See you then.

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  17. "Lots of work will be put into making it massively unpopular."

    Not an argument against it.

    "What do you think the impact would be at the margins?"

    Depends on all sorts of things. What matters at this stage is establishing the principles of no tax before national median earnings, no loopholes for the rich, and a universal guaranteed income of half national median earnings.

    "I see that this behaviour would bring median income down sharply"

    Wouldn't matter. The figure for the tax threshold would simply be whatever was median earnings at the time, and half that for the guaranteed income.

    "Do you think there it's possible that many of the rich people adversely affected might leave the country?"

    No. There are only two cities on earth that offer the lifestyle they want, and the tax regime in America (to which not all of these Arabs, Russians and others could gain entry) is far from soft like this. Many of them live in houses that have been in their families for generations, and they cannot conceive of living anywhere else. And even of those who are not quite so fixed and who would have no trouble getting into New York, they, like most people, simply do not want to live in a foreign country.

    "You could make a start on paying this if you abolished the RAF, I reckon"

    Well, you could save a lot of money if you abolished, say, education as well. So what?

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  18. "Well, you could save a lot of money if you abolished, say, education as well. So what?"

    David, I accept that you don't want to abolish education, or the RAF. I think the point here is that this is going to be astronomically expensive, so it would be interesting to see:

    a) how much you think it would cost (not an exact figure - just to within a few billion would do);

    b) what existing programmes you would scrap to pay for it.

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  19. "this is going to be astronomically expensive"

    Not at all.

    It would save a fortune, because it would cost next to nothing to administer.

    The only people who could possibly object are those currently so rich that they don't have to pay tax.

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  20. Shep's comment here is economically illiterate, and I'm amazed you didn't notice this.

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  21. I'm reading at speed, I've got a lot on.

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  22. Why didn't you post my comment asking for the costings?

    Never mind. What do you think this will cost? I posted a link pointing out that HMRC costs £4bn and collects £404bn, so I don't think your efficiency savings on collection could possibly generate enough money to pay for your changes.

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  23. Shep's illiteracy is merely economic, whereas Anonymous actually can't read.

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  24. No, he's just determined not to pay tax.

    I though you never put up "why didn't you put up" comemnts.

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  25. I don't, normally. This is MY blog.

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  26. Really? HMRC costs £4bn and collects £404bn? Looks like David's plan's dead in the water - there's no way he can pay for it through efficiency savings.

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  27. No wonder your schooling cost quite as much as it did. And to no benefit whatever.

    I am very reluctantly closing this thread, because the sheer volume of "comments" from those incandescent at the mere suggestion that they might consider paying tax, never mind that the lower orders might enjoy any real quality of life, has become completely intolerable.

    A very, very, very raw nerve has clearly been touched.

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